ASIC Retains Focus on Advice

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Advice delivered by vertically integrated businesses will be in the Australian Securities and Investments Commission’s sights over the next 12 months, according to the regulator’s 2015-16 Corporate Plan.

ASIC Chairman, Greg Medcraft
ASIC Chairman, Greg Medcraft

Outlining its strategic priorities and key focus areas for the coming year, ASIC’s latest Corporate Plan highlights that poor financial advice is still a concern for the regulator.

In particular, vertically integrated institutions have been singled out by ASIC as problematic:

‘Vertical integration in the wealth industry can contribute to conflicts of interest and low investor confidence. We have seen poor advice in large institutions and in smaller firms – for example, in life insurance advice practices and through the mis-selling of financial products to investors and consumers,’ ASIC said in its plan.

‘The quality of financial advice continues to be adversely affected by planners’ conflicts of interest or poor competence. This can lead to some people being encouraged or advised to make financial decisions not in their best interests, resulting in losses they cannot afford.’

To improve the quality of financial advice, ASIC said it will act to:

  • Address conflicted advice, misaligned incentives and inadequate risk management, particularly in large, vertically-integrated institutions
  • Remove or deal with ‘bad apple’ advisers
  • Take other regulatory action where advice is not in a client’s best interests or gives priority to an adviser’s interests
  • Enhance financial advisers’ professionalism and ethical standards
  • ASIC also warned about the impact of culture and incentives on financial advice, saying an analysis of these factors will be explicitly incorporated into its risk-based surveillance reviews.

‘Remuneration, incentives, performance management and promotions can act as motivators and reinforce behaviour. They should be linked to a firm’s values at all levels, and should act as a mechanism to reward good behaviours and penalise poor conduct.

The behaviour of gatekeepers is influenced by culture, incentives and deterrence

‘We will also monitor innovations and new financial products and services so they are developed with customers’ interests in mind. This is a fundamental aspect of having a customer-focussed culture,’ ASIC said.

Releasing the Plan, ASIC Chairman, Greg Medcraft, spoke about the importance of gatekeepers in ensuring consumers can have trust and confidence in the financial system.

“The behaviour of gatekeepers is influenced by culture, incentives and deterrence. Where we find a firm’s culture is lacking, it is a red flag that there may be broader regulatory problems. Deterrence involves the fear and consequences of getting caught. It includes the internal structures that a gatekeeper has in place to deter employee misconduct,” Mr Medcraft said.

“As a law enforcement agency, where we see non-compliance, we will continue to act quickly and decisively to promote trust and confidence in the Australian financial system through our ‘detect, understand and respond’ approach.

“We achieve the best risk resilience in the system that we can with the resources we have.”

Assistant Treasurer, Josh Frydenberg
Assistant Treasurer, Josh Frydenberg

ASIC’s funding and resources are also under scrutiny, with the Government releasing a consultation paper on a proposed industry funding model for the organisation.

The consultation paper seeks stakeholder views on a ‘user pays’ funding model for ASIC, as recommended by the Financial System Inquiry.

According to Assistant Treasurer, Josh Frydenberg, an industry funding model for ASIC would:

  • Ensure that the costs of the regulatory activities undertaken by ASIC are borne by those creating the need for regulation (rather than all taxpayers)
  • Establish price signals to drive economic efficiencies in the way resources are allocated in ASIC
  • Increase ASIC’s accountability to its stakeholders

ASIC has long called for improved funding, and Mr Medcraft welcomed the release of the consultation paper.

“An industry funding model is about ensuring that those industries that need the most regulation should pay for it, rather than taxpayers,” Mr Medcraft said.

“It is about establishing a price signal for regulation which we think will drive economic efficiencies in the way resources are allocated in ASIC.

“And an industry funding model will also improve ASIC’s transparency and accountability. That means business will better understand the job we do by having greater visibility of the cost of doing that job.”

Currently only 15% of ASIC’s regulatory costs are recovered through industry levies and fees. ASIC said the cost of using its resources had grown significantly out of line with the revenue collected from the sectors regulated.



3 COMMENTS

  1. Mr Fydenberg, why isn’t ASIC being held responsible for its deliberate misrepresentation of the specifically targeted 200 files it looked at. How is 200 odd files a reasonable representation of the 10’s of thousands of files created yearly? This entire fiasco has been manipulated by insurers from the start and driven solely to increase profits at the expense of advisers and customers.

  2. Absolutely Emkay
    What a joke.?? This has been an absolute Witch Hunt from the start. How can the whole Financial Planning Industry in Australia be judged on 200 files. What sort of Imperical evidence is this when in a normal year the amount of new files created would probably be more like 10,000. These assumptions are based on very low amounts of data. Why does the whole industry have to suffer with these results. Just a joke.!!!

  3. My understanding Chris and Emkay is that ASIC went to an institutionally owned dealership we all know and asked for files on their top risk writers who also had the highest lapse rates so the data and outcome was flawed and manipulated from the outset. It is likely that they probably uncovered a couple of serial churners but this would be in no way a reflection on the whole industry.
    Facts are facts – the risk advice industry has the lowest levels of lapse rates, the lowest levels of upheld FOS complaints and the highest levels of successful claims by comparison to the direct markets. Yet it is us who will be driven out of business.
    My personal view is that ASIC have simply been too weak to stop the financial scandals (most of which have been caused by the banks) and so have picked on an easy target with weak data to fool government into believing they are delivering on something.
    Yet the banks and insurance companies have neatly turned this into a profit making exercise and reduction of competition. The worst losers will obviously be the customer.
    Josh Frydenberg is either compliant or has been completely duped.

    Hollywood would have difficulty selling this unbelievably farce as a movie!

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